The 3 big threats to Lloyds’ share price for 2024 and 2025!

Is Lloyds’ share price one of the FTSE 100’s biggest investor traps? Here are just a few reasons why the Black Horse Bank could be about to sink.

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The Lloyds Banking Group (LSE:LLOY) share price is up 20% since the start of 2024. But with risk appetite declining across financial markets, the FTSE 100 bank could begin to stumble.

It has dipped this week, although Lloyds isn’t the only cyclical share to fall as fears over the global economy heighten. However, the Black Horse Bank also faces specific threats that I feel could send it sharply lower.

In fact, I think Lloyds is in danger of losing all of its recent share price gains, or perhaps worse. Here are what I consider to be its biggest threats today.

New surcharge risk

Investor demand for UK assets (including banking shares) has improved following Labour’s election victory in July. The market is hoping that stable governance from Westminster will benefit the domestic economy, and by extension the country’s high street banks.

However, Labour’s win at the polls could also have huge negative implications for the banking sector. According to Reuters, new Chancellor Rachel Reeves is considering tapping Britain’s banks to mend the public finances following their bumper profits of recent years.

Possible steps might include introducing new bank surcharges, Reuters says, quoting industry sources. If rumours are correct (which they may not be), the upcoming Budget on 30 October could be a painful one for Lloyds and its peers.

The new PPI scandal?

A more specific problem for Lloyds is the surge in claims for the mis-selling of motor finance. The bank has already set aside £450m to cover potential costs, but the final bill could be higher as has happened with previous mis-selling issues.

To recap, the Financial Conduct Authority (FCA) is investigating claims that discretionary commission agreements between banks and retailers in the past resulted in unfair loan costs for consumers. As the largest car finance provider in Britain, Lloyds is especially exposed to massive penalties.

The number of motor finance complaints filed with the Financial Ombudsman is rocketing. These reached 15,925 in the last quarter, up significantly from 3,678 a year earlier.

Some analysts reckon the cost to Lloyds could be billions of pounds. As fears of a new PPI-style scandal grow, the bank’s shares could well head lower.

Growing competition

My other fear for Lloyds and its share price relates to rising competition it faces. Challenger banks have been chipping away at the big banks’ dominance for more than a decade, and their attacks look set to intensify further.

These new kids on the block continue to rapidly expand their product ranges to grab new customers. A number of them like Starling and Revolut are exploring IPOs to keep growing their scope and to offer the most attractive products on the market.

This threatens to keep the established banks’ margins under pressure. In fact, with interest rates tipped to fall steadily over the next year, their ability to grow profits is looking increasingly weak.

On the plus side, Lloyds and its share price could gain if the UK economic recovery carries on. However, given the threats outlined above, this is a FTSE 100 share I think investors should consider avoiding it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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